Nor is it "watered down" because it was developed for PC and console. It's as watered down as Half-Life 2 was for PC.

In actuality, we can't know that.

We can believe what we will, though. I'm personally convinced that the perceived console audience, is responsible for many "watered down" aspects of Bioshock. How many exactly, and to what extent they were watered down, I can't say. But the Quest Arrow, Glowing interactive items, No death penalty whatsoever, Highlighted items, Lack of inventory or even stat screen, are all among things I strongly suspect would have been done differently if this was a PC exclusive title. I'm not saying they wouldn't have been there at all, I'm just saying I strongly doubt they would have done those things in the same blatantly nurturing manner.

It's a mature game balanced for 7 year olds.

I base my opinion primarily on the legacy of System Shock and System Shock 2. None of those games felt compromised to fit the mass market, and it's obvious they were determined to reach a larger audience this time around, and in my opinion they went over-the-top to achieve that. I hope they realise that, and give console gamers a bit of credit. They're not stupid, they're just different.

Finally, before you mention it, yeah I realise that the PC audience is not immune to this effect. Naturally, games have changed on all formats, and many PC exclusive titles are "dumbed down". This is definitely also part of what happened to Bioshock, and indeed I see the overall problem as platform independent. But once you've had sufficient years of experience with this tendency, you will notice that multiplatform games are handled particularly bad in this regard.